Chapter Four The Business Plan

Chapter Focus Explain the importance of the business plan. Describe the components of a business plan. Identify what not to do when writing a business plan. Recognize where to get help in writing a business plan.

Guidelines for Writing a Business Plan Consider your audience. Show the benefit of your business to your reader. Keep it brief. Just long enough to cover all major issues facing the business. Point of view. Try to write your business plan in the third person. Create a professional image. The overall appearance should be professional and attractive but not extravagant.

Marketing Research and Evaluation Markets identify your target markets and concentrate on these key areas Market Trends explain how you will assess your customer’s needs over time Competition identify price leader, quality leader, and service leader Market Share estimate the market share you intend to gain

Marketing Plan Pricing the price must be “right” to penetrate the market, to maintain your market position, and to make profits Promotion how will you attract the attention of and communicate with your potential customers? Place describe how you intend to sell and distribute your products Service Policies describe your service and warranty policies

Manufacturing and Operations Plan Geographic Location describe the planned location Facilities what is needed? Make or Buy Policy what will be produced and what will be purchased as components? Control Systems what is the approach to controlling quality, inventory, and production? Labor Force is there a sufficient quantity of skilled people in the local labor force?

Financial Plan Sources and uses of capital (initial and projected) Cash flow projections for three years Balance sheets for three years Profit and loss statements for three years Breakeven analysis

The Sources and Uses of Funds Worksheet Source of Funds: Debt: Term loans Refinancing of old debt Lines of credit Line 1 Line 2 Mortgage Equity: Investment Uses of Funds: Property Inventory Equipment (itemize) Working capital Cash reserve $__________ Total Sources: $_______ Total Uses: $__________

Balance Sheet (1 of 2) Current Assets Cash Accounts receivable Inventory Supplies Prepaid expenses Fixed Assets Real estate Equipment Fixtures and leasehold improvements Vehicles Other Assets License Goodwill TOTAL ASSETS YEAR 1 $_______ _______ $_______ YEAR 2 $_______ _______ $_______ YEAR 3 $_______ _______ $_______

Balance Sheet (2 of 2) Current Liabilities Accounts payable Notes payable (due within 1 year) Accrued expenses Taxes owed Long-term Liabilities Notes payable (due after 1 year) Bank loans TOTAL LIABILITIES NET WORTH (ASSETS MINUS LIABILITIES) YEAR 1 $_______ _______ _______ $_______ YEAR 2 $_______ _______ _______ $_______ YEAR 3 $_______ _______ _______ $_______

Profit and Loss Projection (1 of 2) SALES: Product/service line 1 Product/service line 2 Product/service line 3 Product/service line 4 TOTAL SALES REVENUE Cost of Goods Sold: Product/service line 1 Product/service line 2 Product/service line 3 Product/service line 4 TOTAL COST OF GOODS SOLD GROSS PROFIT LOW _______ _______ MOST LIKELY _______ _______ HIGH _______ _______

Profit and Loss Projection (2 of 2) EXPENSES: Variable: Payroll Sales commission Freight and delivery Travel and entertainment Semivariable: Advertising/promotion FICA/payroll tax Supplies Telephone Fixed: Rent Utilities Property taxes Dues and subscriptions TOTAL EXPENSES Profit before depreciation Depreciation NET PROFIT LOW _______ _______ MOST LIKELY _______ _______ HIGH _______ _______

Breakeven Analysis 1. Total sales 2. Fixed costs 3. Gross margin 4. Gross margin as a percent of sales (line 3 / line 1) 5. Breakeven sales (line 2 / line 4) 6. Profit goal 7. Sales required to achieve profit goal [(line 2 + line 6) / line 4] $__________ _________% $__________